Competition Works

Appeared in dozens of newspapers across the country, including The Vindicator (OH), The Charleston Gazette (WV), Sunday Gazette-Mail (WV), The Kansas City Star (MO), and The Charlotte Observer (NC).

Competition works in health care, and consumers are starting to exercise their buying power to get better choices and bring prices down.

For example, costs for the new Medicare drug benefit are lower than original estimates, something that almost never happens with a government program, because seniors were given the chance to be smart shoppers.

The new Medicare drug program allows private companies, not a centralized government bureaucracy, to deliver the new drug benefit.

The drug plans compete fiercely to get seniors to sign up with them, offering a long list of the newest drugs and negotiating with the drug companies to get the lowest prices.

The result: Seniors have driven the average monthly premium for the drug benefit down by 40%. The drug benefit was originally expected to cost $37 a month when Congress created the plan, but because seniors flocked to the lower cost plans, the average premium is only $24 a month. And seniors will see average prices stay level next year.

So premium prices for the new Medicare drug benefit are lower and, once seniors had finished the sign-up process, the vast majority have said they are happy with their coverage and are saving money — an average of $1,200 a year.

And consumer power is working to bring prices down at the retail level as well. Wal-Mart announced last month that it will offer its customers a 30-day supply of well over 100 different generic medicines for just $4 each. Target quickly said it would match the prices, and surely others will be close behind.

None of the big retailers wants to lose the business of customers who just might pick up some soap and toothpaste when they pick up their prescriptions.

Consumers are beginning to reshape the health sector so that it can operate more like the rest of the economy, forcing companies to come up with faster, better, cheaper services and products, something government is notoriously unable to do.

Yet some congressional leaders, such as Minority Leader Nancy Pelosi, want to change the Medicare drug benefit "by allowing Medicare to negotiate lower prices." They argue that government could use its huge buying power to get a better deal for seniors.

But because the government is such a big buyer, that means it wouldn't "negotiate" prices but would dictate them. It could force companies to cut their prices so much that they would have fewer resources left to invest in research to produce the next generation of drugs. We could wait a long time for that cure for Alzheimer's or Parkinson's if research dries up.

Yet that's exactly what has happened in Europe. Those governments have been so intent on getting cheap pills that they have driven pharmaceutical companies to move their research facilities — and the good, high paying jobs that go with them — to the more friendly environment in the U.S.

There's no doubt that Plan D is clumsily structured with a so-called doughnut hole in the middle which may force some seniors to pay about $3,000 out-of-pocket after their routine coverage ends and before catastrophic coverage kicks in.

But that's not the fault of the private market: That is what an insurance policy designed by Congress looks like. In fact, the drug companies have worked hard to fill the doughnut hole by developing plans that offer coverage in the gap.

And seniors also have a chance, starting November 15, to switch plans if they find themselves hitting the doughnut hole this year.

Consumers are smart shoppers, and they have shown they can exercise even stronger buying power than the federal government, and do so without killing innovation and research. It's about time that we would give a new force in our health care system — savvy consumers — a chance for a change.

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Grace-Marie Turner is president of the Galen Institute, a non-profit research organization that focuses on free market ideas for health reform. She can be reached at galen@galen.org